BENTEK foresees potential Gulf Coast gas storage overbuild
  by: OilOnline
  Friday, May 02, 2008

A new BENTEK Energy, LLC analysis of Southeast/Gulf region natural gas storage development reveals that 31 storage projects planned between 2008-2010, including new fields and expansions, could add more withdrawal capacity than there is available pipeline capacity to move the gas out of the region. If all 31 projects are completed, it would add 305 billion cubic feet (Bcf) of working gas capacity and 17.5 Bcf/d of high-deliverability withdrawal capacity from multi-turn, salt-dome facilities.

"During the same time these storage facilities are scheduled for completion, new pipelines will bring incremental domestic production into the Southeast/Gulf region from Texas. New LNG terminals will also add to the rapid build-up of inbound capacity into the region," said E. Russell (Rusty) Braziel, managing director of BENTEK Energy. "The risk of overbuild will not be defined by excess storage capacity so much as it will be driven by an excess of deliverability within the region," he added. "During high withdrawal periods in the winter heating months, storage gas will compete head to head with increasing pipeline deliveries in the region. And, given pipeline constraints on outbound capacity from the area until new construction is completed, we expect to see unprecedented imbalances in regional storage, flows and pricing over the next few years."

Part Two of BENTEK's newly released "I" of the Storm^TM report series provides an in-depth analysis of market implications for various storage scenarios in the region during 2008-2010. It also reviews the gas flow competition that is developing between Southeast/Gulf storage, new pipeline projects and LNG terminals and details current changes in flows and basis pricing differentials at the Carthage and Perryville hubs in northeastern Texas and northern Louisiana, respectively, as new capacity moves into the region starting as early as this spring.

"Increased withdrawal capacity from all of the new high-deliverability, salt-dome storage facilities would significantly increase the market's ability to capture price spikes or peaks, effectively capping ‘peak shaving' trading opportunities critical to the economics of many of these facilities," Braziel added. "When prices start to spike, the crowd of new storage players will tend to sell into the increase and thus mitigate the increase, dampening price volatility. In fact, a more viable source for extrinsic storage economics for Gulf Coast salt dome facilities will likely be ‘trough trolling.' The opposite of peak shaving, we define trough trolling as the use of multi-cycle storage to inject gas during periods of depressed prices and withdraw it only after supply and demand return to a more normal balance."

Part Two of the series also analyzes the first quarter 2009 impact of REX East's pipeline completion to Clarington, OH, and the resultant affect on flows and pricing in the Southeast/Gulf. The report concludes that REX East flows will compete with traditional pipelines bringing supply into the Ohio Valley, displacing 0.7 Bcf/d to 1.0 Bcf/d of Southeast/Gulf region supply. Pipeline expansions within the Southeast/Gulf will exacerbate the situation. The Kinder Morgan/Energy Transfer Midcontinent Express pipeline will begin delivering 1.4 Bcf/d to Transco Station 85, Perryville Hub and points in between in early 2009, at about the same time that REX East is displacing Gulf gas on some of the same pipelines.

For more information about BENTEK's "I" of the Storm^TM Market Alert series or the daily Southeast/Gulf Observer^TM newsletter, go to http://www.bentekenergy.com/ or call BENTEK at 888-251-1264.

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